Where's the Next Big Buyout in Tech?

Oracle (Nasdaq: ORCL  ) is on an acquisition tear. Virtualization software makes liquid capsaicin seem as mild as marshmallows. So of course Oracle is buying a credible virtual machine expert.

Just weeks after agreeing to lay down $5.6 billion for Sun Microsystems (Nasdaq: JAVA  ) -- net of Sun's considerable cash hoard -- the database titan has picked up privately held Virtual Iron for an undisclosed sum. Virtual Iron is certainly a much smaller purchase than Sun. It should quickly become accretive to Oracle's growth though; all we know of Virtual Iron's finances today is that it grew revenue 130% year over year at the end of 2008.

So now Oracle owns three different virtualization products: Sun's xVM suite, Virtual Iron's eponymous package, and its own Oracle VM. Curiously, all three solutions borrow the crucial hypervisor component, which helps you manage a multitude of virtual machines from a central point, from the previously open-source Xen project. Citrix Systems (Nasdaq: CTXS  ) owns Xen now, giving that company a bit of leverage on what happens in the broader virtualization market.

Of course, with VMware (NYSE: VMW  ) looming large over said market and Microsoft (Nasdaq: MSFT  ) working hard to catch up with its Hyper-V line, that could make small-cap Citrix the next acquisition target here. Cisco Systems (Nasdaq: CSCO  ) is not afraid of buying its way into new markets, doesn't have any virtual machine software of its own, and could essentially build an entire data center on its own platforms with Citrix under its belt. Oh, and a deal for less than $10 billion (including a generous buyout premium) would be a mere morsel for ultra-rich Cisco. Many of the same arguments would work for Hewlett-Packard (NYSE: HPQ  ) as well.

For Oracle, this was a savvy deal that adds a well-respected software offering to an already burgeoning portfolio. Virtual Iron's low-cost one-stop-shopping product has appealed to small and medium businesses while Oracle traditionally grabs large enterprise accounts first. So Larry Ellison just grew his addressable market for virtualization -- and will probably follow up with package deals for databases and middleware. Nice move, Larry.

Further virtual Foolishness:

VMware is a Motley Fool Rule Breakers pick. Microsoft is a Motley Fool Inside Value selection. Try any of our Foolish newsletters today, free for 30 days.

Fool contributor Anders Bylund holds no position in any of the companies discussed here. He's been using virtual machines of various flavors for fun and profit since 2003, though. You can check out Anders' holdings or a concise bio if you like, and The Motley Fool is investors writing for investors.


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  • Report this Comment On May 18, 2009, at 5:16 PM, Joewantswork wrote:

    Where's the Next Big Buyout in Tech ? - Same place as the next big RIF in Tech will be!

    Check out "Signs you may be on the next RIF list" at http://joewantswork.blogspot.com/

  • Report this Comment On May 19, 2009, at 2:51 PM, jton66 wrote:

    Motley annoys me some times due to their constant lack of desire to go the extra mile on research.

    My example is this, they have an article right now about the next big tech M&A deal and they are discussing virtualization targets (VMWare, Citrix etc…etc…) being taken out by either Oracle, Cisco or HP and they are building a big case for Cisco b/c it is as usual, flush with cash and this kind of deal is peanuts for them so they can afford it.

    This is typical Motley Fool research, go one step of the way to show that Cisco is financially able to make a big splash (thereby jacking up some joe schmo investor to buy one of the targets), but what they fail to do is inform that Cisco never makes big splash deals. Cisco’s largest deal was for Scientific America and that was roughly $2B and that deal helped them on their track for their primary goal, not a side project.

    Virtualization is a side project for Cisco, they already have alliance deals figured out to stack their product.

    Cisco never does huge deals because of one reason and it isn’t money, its integration, they never buy companies they cannot fully integrate within one month.

    I like the Fool but their research and assertions are often shallow.

  • Report this Comment On June 24, 2009, at 5:47 PM, kgeechee wrote:

    jton66, you got that one Right On!

    "their research and assertions are often shallow" exactly typical of their "Million Dollar Portfolio" which is now back up to $5.95 before sales commission and not counting Motley Fool's advice fee.

    Motley Fool Me was Right On. Once. Actually, I had 3 other MF advisory services that I cancelled to get the M$P. Sometimes I just do not know when I am good enough! No more MF advise as it ranks with ML & SB.

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